Credit Accessibility of Small and Medium Sized Enterprises

CREDIT ACCESSIBILITY OF SMALL AND MEDIUM SIZED ENTERPRISES: A CASE STUDY OF MANUFACTURING SECTOR IN CAMBODIA, CHINA, LAO PDR, THAILAND AND VIETNAM

Abstract

Small and Medium-sized Enterprises (SMEs) are the core engine of sustainable economic growth and poverty alleviation in the Greater Mekong Subregion (GMS) countries. SMEs are recognized as a strategically viable sector generating employments and incomes. SMEs contribute substantially to the gross domestic products of the GMS countries. For instance, the number of SMEs which are overwhelmingly dominant by manufacturing enterprises accounts for 99% of all enterprises in the GMS countries. However, manufacturing SMEs traditionally face difficulties in accessing formal credit.

This research identifies the constraints for manufacturing SMEs in accessing formal credit in five selected study sites: (i) Phnom Penh (Cambodia), (ii) Guangxi (China), (iii) Vientiane (Lao PDR), (iv) Chiang Rai (Thailand), and (v) Hanoi (Vietnam). The research findings will comparatively assess the common and different constraints for manufacturing SMEs in accessing formal credit among the five countries. Furthermore, the research findings will propose alternative means for improving credit accessibility of manufacturing SMEs. Finally, policy recommendations will be provided for respective government to improve credit accessibility of manufacturing SMEs.

Keywords: Manufacturing SMEs, formal credit, accessibility

1 CREDIT ACCESSIBILITY OF SMALL AND MEDIUM SIZED ENTERPRISES: A CASE STUDY OF MANUFACTURING SECTOR IN CAMBODIA, CHINA, LAO PDR, THAILAND AND VIETNAM

I. BACKGROUND

Small and Medium sized Enterprises (SMEs) are essential for the structural change of a country, from agriculture-based economy to an industrial and service-oriented economy (Kyaw, 2008). Moreover, SMEs have been recognized as an important strategic sector for generating high income growth and reducing unemployment (OIC, 2008). Thus, support of private sector development, particularly SMEs sector, is seen as a main development priority to achieve sustainable economic growth for poverty reduction in the Greater Mekong Subregion (GMS) countries (ADB, 2000). For example, SMEs development is crucial for sustained and equitable development of the Cambodian economy (Baily, 2007). With 92 percent of all Cambodian jobs created by the private sector, and the private sector comprised primarily of SMEs, most would agree that economic growth depend on SMEs (MPDF, 2003). Specifically, Kang (2009) states SMEs contribute around 65% to gross domestic products (GDP) of Cambodia. They employ 85% of the whole Cambodian job market.

Similarly, the number of SMEs in China accounts for 99% of all enterprises and provides more than 75% of employment (Xiengfeng, 2007). The government of Lao PDR has realized that economic growth cannot be sustained based on large enterprises and foreign direct investment (FDI). These enterprises need to be complimented by other type of enterprises such as SMEs, which are the backbone of the Lao economy, particularly in term of employment (ADB, 2005). The domestic private sector is comprised mainly of SMEs; approximately 98% of manufacturing activities is dominated by small firms, while 56% of industrial output is contributed by manufacturing SMEs (GTZ HRDME, 2008).

On the other hand, according to the office of SMEs promotion of Thailand, the total number of all types of enterprises in 2006 was 2,287,057. Among this large number, the total number of SMEs was 2,274,525 or 99.5%. The SMEs’ share in GDP of Thailand is 38.2% (NESDB, 2007). In particular, manufacturing SMEs play a dominant role in Thai economy contributing 30.7% to the GDP (NESDB, 2007). With regards to the SMEs structure classified by business sector in 2006, the 2,274,525 SMEs had the largest number in trade and repairs, totaling 908,846 or 40.0% of the overall number, followed by services with 675,622 or 29.7% and production with 672,351 or 29.6% (NESDB, 2007). Likewise, SMEs in Vietnam account for 97% of nearly 300,000 enterprises contributing 26% to the GDP and create 77% non-agricultural employments.

Credits play a critical role in SMEs development in both developed and developing nations. Access to credit is a crucial factor that determines the capability of SMEs to

2 undertake productive investments to expand their business and to employ the latest technologies, thus ensuring the competitiveness and sustainability of the sector (UNCTAD, 2001). Financing is necessary to help SMEs set up and expand their operations, develop new products, and invest in new staff or production facilities (OECD, 2006). If SMEs cannot access to credit they need, their growth and development would be curtailed (OECD, 2006).

If entrepreneurs cannot gain access to credit through the formal financial system, they may not be able to start up a business or simply go out of business representing a potential loss to the economy. In addition, they will abandon the formal economy altogether and operate in the informal economy, sidestepping taxes and regulations, and thus not making a full contribution to economic growth and job creation in the country (OECD, 2006).

II. LITERATURE REVIEW

1. Definition of SMEs:

Different countries adopt different definitions of SMEs. In general, SMEs definition is based on three main criteria including employment, total net assets, and sales and investment level (Ayyagari, Beck and Demirgüç-Kunt, 2005). The definition of SMEs can be based on one specific criterion – employment but this also varies from countries to countries. Therefore, Ayyagari et al. (2005) definition of SMEs is based on the number of employees ranging from 0-250.

According to the Sub-committee on Small and Medium Enterprise of Royal Government of Cambodia (RGC) in 2005, the definition of SMEs in terms of employment and total assets (excluding land) is as follows:

Sizes Number of employees Total assets (excluding land)

(US$) Micro 0-10 0-50,000

Small 11-50 50,000-250,000

Medium 51-100 250,000-500,000

Source: Sub-committee on Small and Medium Enterprise, RGC, 2005.

It is noteworthy that SMEs in China is defined based on the number of employees, sales, and total assets that vary from industry to industry. Construction and transportation services have the highest number of employees which is up to 3,000. On the other hand, the Lao PDR’s government has issued a decree 42/PM on the promotion and development of SMEs which provides the definition of SMEs as follows:

Asset Turnover Employment Size (Million Kip) (Million Kip) (person) Micro < 250 < 400 1 – 2

3 Small < 250 < 400 3 – 19

Medium < 1,200 < 1,000 20 – 99

Source: Prime Minister’s decree No. 42, 2004

Similarly, the Ministry of Industry introduced the definition of Thai SMEs on 11 September 2002. The definition depends on the number of salaried workers, and fixed capitals. An enterprise is categorized as an SME if it has less than 200 workers and fixed capital less than baht 200 million, excluding land and properties. Besides, according to the government’s decree 90/2001/ND-CP, dated 23 November 2001, article 3, SMEs in Viet Nam are defined as independent production and business establishments, which make business registration according to the current law provisions, each with registered capital not exceeding VND 10 billion or annual labor not exceeding 300 people.

2. Problems of financing SMEs

The issue of credit accessibility of SMEs can be analyzed from three aspects: the supplier – financial institutions, the demander – SMEs, and market builder and system provider – government. Firstly, the credit system cannot fulfill needs of SMEs. Secondly, SMEs often have low profit; and most of the small sized enterprises are short of trade standard, consummate accounting system, clear information, high level management and composite competition, which are causing their financing difficulty. For example, the credit policy and term, credit capital usage, capital price, and mortgage guaranty system are all disadvantageous to SMEs. Finally, the government needs to support and promote SMEs’ development. This includes training the enterpriser, establishing the business committee, and standardizing the tax preferential policy (Meng and Wang, 2007).

OECD (2006) explored the obstacles of SMEs access to financing to include the incomplete range of financial products and services, regulatory rigidities or gaps in the legal framework, very young firms that typically lack sufficient collateral, or firms whose activities offer the possibilities of high returns but at a substantial risk of loss and lack of information on both banks and the SMEs. In addition, higher interest rates make it more difficult for SMEs to borrow than for bigger companies, and may make it effectively impossible for many SMEs to borrow money because the price of credit is too high.

Wattanapruttipaisan (2003) identifies four main obstacles of credit accessibility of SMEs. Firstly, most financial institutions have profitable with SMEs as their sole or major debt clientele, despite the interest premium based on higher risk and transaction cost. Secondly, for various reasons, many SMEs avoid using commercial banks for payroll management and other day-today working accounts (of incoming and outgoing transactions), thus precluding the formation and cementing of bank-client relationships which are an integral part of the so-called reputation collateral on the SMEs. Thirdly, bank lending decisions are traditionally based on the availability of fixed assets as collateral, a sound business plan and, to a much lesser extent, a personal guarantor or mutual guarantee fund for

4 loans, and machinery and equipment to be purchased by the loans under application being offered as partial security. Fourthly, supplementary financing or credit enhancement arrangements include credit guarantee, export and import bridging finance and refinance, venture capital, equipment leasing, inventory financing or factoring, and credit risk insurance.

III. PROBLEM STATEMENT

Where lending is provided to SMEs, banks will lend only with secured collateral such as land and buildings, because there is no enabling framework to lend on other forms of collateral and because of the difficulties in assessing loans of SMEs (RGC 2005).

According to Beck, Demirgüç-Kunt, Laeven, and Maksimovic (2004), there are three main obstacles for the firm to be financed including firm size, age and ownership. For instance, older, larger, and foreign-own firms report less financing obstacles. Moreover, the obstacles of getting finance also vary from industry to industry. For example, the firms in agricultural, construction, and manufacturing sector report higher financing obstacles (Thorsten, 2004). Thorsten et al. (2004) also states that SMEs have higher obstacles in accessing credits than large firms due to collateral requirements, bank paperwork and bureaucracy, needs for special connection with financial institutions, and credit information.

There is little literature addressing the credit accessibility problems in the GMS, particularly the credit accessibility of manufacturing SMEs. For example, Konishi (2003) states the current literature does not provide an adequate understanding of the structure and constraints faced by the domestic private sector, including rural entrepreneurs.

IV. GENERAL RESEARCH QUESTION

Why manufacturing SMEs in Cambodia, China, Lao PDR, Thailand and Vietnam have difficulties in accessing credits from formal financial institutions?

V. SPECIFIC RESEARCH QUESTIONS

1. What are the constraints manufacturing SMEs in Cambodia, China, Lao PDR, Thailand and Vietnam confront to access formal credit?

2. What are common and different constraints of credit accessibility of manufacturing SMEs in Cambodia, China, Lao PDR, Thailand and Vietnam?

3. What are the alternative means to improve credit accessibility of manufacturing SMEs in Cambodia, China, Lao PDR, Thailand and Vietnam?

4. What are some of the mechanism or policies each country’s government has to promote credit accessibility for manufacturing SMEs?

5 VI. RESEARCH METHODS

1. CONCEPTUAL FRAMEWORK Associability Credit providers

- Networking - Types of loans

- Past Experience - Loan sizes

- Age of Business - Collaterals Constraints to Credit Accessibility of SMEs - Duration - Terms of repayment

Availability Affordability

- Financial institutions - Interest rates (banks & MFIs) - Costs of processing - Distance loans - Procedures

Alternative means for improving Mechanism/policies for improving credit accessibility of SMEs by credit accessibility of SMEs by the financial institutions (Banks & government MFIs)

Improved Credit Accessibility of SMEs 6 Affect to

Possible solutions

Impact on

2. Empirical Model

The empirical model in our research is developed from qualitative choice analysis, which is widely used in describing decision-makers’ choices in areas such as transportation, housing and telecommunications. A qualitative choice situation is defined as one in which a decision-maker faces a choice among a set of alternatives. Any choice situation in which the decision or choice is represented by a continuous variable is not a qualitative choice situation. Basically, qualitative choice models designate a class of models, such as logit and probit, which attempt to relate the probability of making a particular choice to various explanatory factors and calculate the probability that the decision-maker will choose a particular choice or decision from a set of choices or decisions, given data observed by the researcher (Ben-Akiva and Lerman, 1985).

For many commodities and services, the individual's choice is discrete and the traditional demand theory has to be modified to analyse such a choice (Ben-Akiva and

Lerman, 1985). Let Ui( y i , w i ,z i ) be the utility function of consumer i, where yi is a dichotomous variable indicating whether the individual SME owner has accessibility to formal or informal financial institutions, wi is the wealth of the consumer and zi is a vector of the consumer's characteristics. Also, let c be the average cost of borrowing, then economic theory posits that the SME owner has accessibility to formal financial institutions if

Ui( y i= 1,w i - c,z i) � U i( y i 0, w i ,z i ) (1)

Even though the consumer's decision is straightforward, the analyst does not have sufficient information to determine the individual’s choice. Instead, the analyst is able to observe the consumer's characteristics and choice, and using them to estimate the relationship between them. Let xi be a vector is of the consumer's characteristics and wealth, xi= ( w i ,z i ) and then equation (1) can be formulated as an ex-post model given by:

7 yi= f( x i) + e i (2)

where ei is the random term. If the random term is assumed to have a logistic distribution, then the above represents the standard binary logit model. However, if we assume that the random term is normally distributed, then the model becomes the binary probit model (Maddala, 1993; Ben-Akiva and Lerman, 1985). The logit model will be used in this analysis because of convenience, as the differences between the two models are slight (Maddala, 1993). Logit model will be used to answer research objectives 1 and 2. The model will be estimated by the maximum.

SMEs accessibility to credit is hypothesized to be affected by the following factors and can be implicitly written under the general form:

Credit accessibility of manufacturing SMEs = ƒ (Associability, Availability, Affordability) + Credit providers + Characteristics of manufacturing SMEs + Demographic sample

Where:

Credit Accessibility = 1 if SMEs borrow from formal financial institutions; 0 otherwise

Associability = Networking, past experience, and age of business

Availability = Financial institutions (Banks & MFIs), distance

Affordability = Duration, costs of getting loans, and procedures.

Credit providers = Types of loans, loan sizes, collaterals, duration, terms of repayment

Characteristics of manufacturing SMEs = Types of manufacturing SMEs, sizes of manufacturing SMEs, and ownership of manufacturing SMEs

Demographic variables = Age, gender, education

3. Methodology and Data Collection

The data will be collected from a convenience sample of SMEs owners, 18 years and over. In this study, a survey questionnaire will be used to collect the data. Prior to administering the survey questionnaires to the respondents, pre-testing of the questionnaire will be conducted. Pre-testing of the questionnaire will conducted on a random sample of 15 SMEs owners in Cambodia, China, Lao PDR, Thailand and Vietnam. The pre-test is conducted to obtain feedback to improve the content of the questions, instructions, clarity,

8 and the layout of the questionnaire. During the pre-test procedure, the respondents will be encouraged to comment on any questions that are unclear, and ambiguous.

The survey questionnaire will be divided into four sections. The first section comprised of questions related to the respondent’s access to formal credit. It includes questions such as access to loans in the past two years including sources of credit. Section Two consist of questions pertaining to the respondent’s borrowing behaviour such as loan amount, loan purpose, sources of credit, loan charges including the type of collateral or security required. Section Three of the questionnaire deals with the respondent’s choice of lender, factors affecting the respondent’s preferred lender, problems encountered in borrowing and perceptions on credit accessibility. A five-point Likert scale was used to measure the response of SMEs regarding the factors affecting their choice of creditors and problems encountered in borrowing. Lastly, section Four established the socio-economic profile of the respondents.

4. Sampling Procedures

The desired sample size for the survey of our study is a based on the formula developed by Cochran (1963:75). A structured questionnaire interview will be used to elicit information from SMEs. Convenience sampling is used in our study due to the unavailability of the list of names from our study populations. The survey will be administered in Cambodia, China, Lao PDR, Thailand and Vietnam.

Empirical analysis includes descriptive statistic and cross-tabulation tables to discuss the profile of our respondents and research study areas. Following this we plan to use logistic regression to analyze our data and present our findings. This includes using t-statistic to test the relationship between our dependent and independent variables. These will be estimated using SPSS and Excel software.

VII. SCOPE OF THE STUDY AND STUDY SITES

The scope of the study identifies constraints to credit accessibility of manufacturing SMEs, providing comparative assessment of constraints to credit accessibility of manufacturing SMEs in the three countries, proposing some alternative ways for improving credit accessibility of manufacturing SMEs, and recommending some mechanism or policies for respective government to promote credit accessibility for manufacturing SMEs. We will not address other sectors due to time and budget constraints. Furthermore, our study will focus on the demand aspect of SMEs credit accessibility

This study will be conducted in Cambodia, China (Guangxi Zhuang Autonomous Region), Lao PDR, Thailand and Vietnam. This includes Phnom Penh (the capital city of Cambodia), Nanning city (capital of Guangxi Zhuang Autonomous Region), Vientiane (the capital city of Lao PDR), Chiang Rai (a province of Thailand), and Hanoi (the capital city of Vietnam) will be selected for the field survey. These five sites have similar problems in terms of credit accessibility of manufacturing SMEs. These five sites are the concentration of

9 manufacturing SMEs which will provide an advantage of easy and better access to data collection.

VIII. EXPECTED OUTCOMES AND DISSEMINATION

The study is expected to identify what are the constraints for manufacturing SMEs in accessing formal credit in Cambodia, China, Lao PDR, Thailand and Vietnam. This information would be of vital significance for SMEs, formal financial institutions, governments and pertinent stakeholders in promoting the credit accessibility of SMEs. Furthermore, research findings would complement the pervious findings on credit accessibility of SMEs. Also, the report of the study would fill the gap of current literature on GMS issues.

The research findings would provide relevant information to formal financial institutions and governments to streamline the current practice and policy in providing credit to SMEs and to increase the credit accessibility of SMEs.

The research findings will be disseminated in workshops, particularly the Mekong Institute Round Table Meeting, with SMEs, formal financial institutions, government officials and other relevant stakeholders interested in SMEs. In addition, the report will be published as a research working paper of the Mekong Institute (MI). It is also intended to publish in review of development and cooperation of MI.

10 REFERENCES

ADB, 2000. “Technical assistance for small and medium-sized enterprise growth and development in the Mekong region.” http://www.adb.org/Documents/Profiles/GMS/Data/INV002.pdf accessed on 02 May 2009.

ADB, 2005. “Lao PDR: Private Sector and Investment Climate Assessment Report 2005.”

ADB, 2006. “Best Practice Notes on Small and Medium Sized Enterprise Support.”

ADB, 2007. “Proposed Asian Development Fund Grant and Technical Assistance Grant Lao PDR: Private Sector and Small and Medium-sized Enterprises Development Program Cluster (Subprogram 1).” Report and Recommendation of the President to the Board of Directors.

Aung Kyaw, 2008. “Financing small and medium enterprises in Myanmar.” http://www.ide.go.jp/English/Publish/Download/Dp/pdf/148.pdf accessed on 02 May, 2009.

Beal, Tim and Abdullah, Moha Asri, 2003. “The Strategic Contributions of Small and Medium Enterprises to the Economies of Japan and Malaysia: Some Comparative Lessons for Malaysian SMEs”, in C. Jayachandran and Paul Himangshu. “Strategies for Sustainable Globalization: Business Responses to Regional Demands & Global Opportunities.” Proceedings for the 7th International Conference on Global Business & Economic Development.

Business Issues Bulletin, No. 1, Nov. 2003. http://www.ifc.org/ifcext/mekongpsdf.nsf/AttachmentsByTitle/BIB-1-CAM-ENG/ $FILE/BIB-1-CAM-ENG.pdf accessed on 02 May, 2009.

11 Celine Kauffmann, 2005. “Financing SMEs in Africa, Policy Insights. No.7.” http://www.sourceoecd.org/10.1787/021052635664 accessed on 28 May 2009.

Chaiyuth Punyasavatsut, 2007. “SMEs in the Thai manufacturing industry: Linking with MNEs.” http://www.eria.org/research/images/pdf/PDF%20No.5/No,5-10-Thai.pdf accessed on 30 May, 2009.

GTZ, Human Resource Development for Market Economy, 2008. “Enterprise Survey Report 2007.” Vientiane, Lao PDR.

Meghana Ayyagari, Thorsten Beck and Asli Demirgüç-Kunt, 2005. “Small and Medium Enterprises across the Globe.” http://siteresources.worldbank.org/DEC/Resources/84797- 1114437274304/SME_globe.pdf accessed on 03 June 2009. Meng Shan-Shan and Wang Hui-ying, 2007. “Solution to small and medium-sized enterprise financial service of China.” China-USA Business Review. Vol. 6, No.3, Serial No. 45. March 2007.

Ministry of Industries and Handicraft, 2005. “A five year Strategy and Action Plan for Industrial and Handicraft Development no. VI (2006-2010).” Vientiane, Lao PDR.

Naw Pa Saw Htee, 2002. “Small and Medium Enterprises (SMEs) Development in Myanmar.” Master Thesis Paper submitted to Asian Institute of Technology (AIT).

OECD, 2006. “Policy Brief: Financing SMEs and Entrepreneurs.” http://www.oecd.org/dataoecd/53/27/37704120.pdf accessed on 02 May, 2009.

Peter Baily, 2007. “Cambodian small and medium sized enterprises: constraints, policies and proposals for their development.” http://www.eria.org/research/images/pdf/PDF %20No.5/No,5-1-Cambodian.pdf accessed on 30 May 2009.

Phouphet Kyophilavong, 2007. “SME Development in Lao PDR.” http://www.eria.org/research/images/pdf/PDF%20No.5/No,5-7-Lao%20PDR.pdf accessed on 30 May 2009.

Report of the 6th and final meeting of the OIC Task Force on SMEs www.comcec .org/EN/belge/24comcecen/ıccı/Report- OIC -TF.doc accessed on 31 May 2009.

Research Institute of Development Assistance (RIDA), 1996. “The Myanmar Economy: Its Current Status and Future Challenges.” OECF Research Papers No. 13, 1996.

Royal Government of Cambodia, 2005. “Small and medium enterprise development framework.” Sub-committee on Small and Medium Enterprises, July 2005.

Thitapha Wattanapruttipaisan, 2003. “Four Proposals for Improved Financing of SME Development in ASEAN.” Asian Development Review, Vol. 20, No. 2, December 2003.

12 Thorsten Beck, Aslı Demirgüç-Kunt, Luc Laeven, and Vojislav Maksimovic, 2004. “The determinants of financing obstacles.” World Bank Policy Research Working Paper 3204.

UNCTAD, 2001. “Finance and e-finance for SMEs as a means to enhance their operations and competitiveness.” http://r0.unctad.org/ecommerce/event_docs/geneva_efinance_issues.pdf accessed on 02 May 2009.

Yasuo Konishi, 2003. “Towards a private sector-led growth strategy for Cambodia. Volume 1: Value Chain Analysis.” The World Bank, June 2003.

13 TIMETABLE

Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 No. Activities W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 W4 Questionnair e X X 1 development 2 Pre-testing X Questionnair X 3 e finalization Questionnair X 4 e translation 5 Field survey X X X X X Data entry X X X X 6 and cleaning Mid-term X X 7 review 8 Data analysis X X X X X Report writing - X X X X X X X X X X 9 First draft Report X X X X 10 finalization

14 ESTIMATED BUDGET

Subregional Project Formulation/Implementation in the GMS (Mekong Institute 2009) Estimated Research Costs Contribution of Required Amount of Fund Fund No. Description Remarks Cambodi Lao Thailan Vietna Recepien a China PDR d m Total MI t 1 Direct Costs 250. 200. 176.0 200.0 1,026. 400 questionaires 1.1 Questionnaire preparation 200.00 00 00 0 0 00 1,000. 500. 441.0 500.0 2,941. bus, train, taxi, airfare 1.2 Local Transportation 500.00 00 00 0 0 00 120. 500. 294.0 500.0 1,914. during data collection for 20 1.3 Accommodations/Food 500.00 00 00 0 0 00 days 80. 100. 29.0 100.0 409. 1 day training 1.4 RA Training 100.00 00 00 0 0 00 1,200. 400. 441.0 600.0 3,241. during data collection for 20 1.5 RA allowances 600.00 00 00 0 0 00 days 220. 100. 29.0 100.0 549. 1.6 Books and literature purchase 100.00 00 00 0 0 00

1.7 Software purchase/rent - Field activities expenses (tea/ snacks, 1,600. 100. 88.0 100.0 1,988. during field visit and data 1.8 others) 100.00 00 00 0 0 00 collection 800. 300. 250.0 350.0 2,000. not more than 10% of the 1.9 Team leader/members allowances 300.00 00 00 0 0 00 total fund 5,270. 2,200. 1,748.0 2,450.0 14,068. Sub-total 2,400.00 00 00 0 0 00

2 Support Services - 320. 100. 88.0 100.0 658. for report and other 2.1 Printing/Copying 50.00 00 00 0 0 00 documents 220. 200. 29.0 100.0 649. 2.2 Tel, fax, internet,Mail 100.00 00 00 0 0 00

15 150. 88.0 238. 2.3 Computer accessories 00 0 00 100. 150. 74.0 150.0 574. Notebook, folders, pencils 2.4 Stationary/purchase 100.00 00 00 0 0 00 790. 450. 279.0 350.0 2,119. Sub-total 250.00 00 00 0 0 00

3 Dissemination -

3.1 National workshop -

3.2 Publication on local language -

Sub-total ------

4 Recipient Contribution - 50. 50. for eight months 4.1 Computer uses 00 00 30. 30. for eight months 4.2 Office room uses 00 00 500. 375.0 875. Pay for workplace 4.3 Contribution on cash - 00 - 0 00 80. 80. 4.4 Others (please specify) 00 00 660. 375.0 1,035. Sub-total - 00 - 0 - 00 6,720. 2,650. 2,402.0 2,800.0 17,222. 17,222. Grand Total 2,650.00 00 00 0 0 00 00

16 17 ANNEX 1: SURVEY QUESTIONNAIRE FOR MANUFACTURING SMEs

Mekong Institute Khon Kaen, Thailand

Survey Questionnaire: Credit Accessibility of Manufacturing SMEs in Cambodia, China, Lao PDR, Thailand, and Vietnam

Code No. ______

Instructions: For each question with brackets or box provided, please tick your answer(s). Otherwise, please follow the instructions given to answer the questions. Note Make sure that the respondent is manufacturing SMEs before proceeding with the interview.

Section 1: Accessibility to Formal and Informal Credit

1. Are there any financial institutions in your area?

Yes [ ] No [ ]

2. What is the distance of the nearest financial institutions in your area?

a. 1-5 kilometers [ ] b. 6-10 kilometers [ ] c. 11-15 kilometers [ ] d. 16-20 kilometers [ ] e. More than 20 kilometers [ ]

3. Did you need to borrow money at any one time in the last 12 months?

Yes [ ] No [ ]

If no, please go to Q6.

4. Were you able to borrow money?

Yes [ ] No [ ]

If no, please proceed to Section 3.

5. Where did you source your credit?1 1 Formal lenders include all regulated institutions such as private banks, government banks as well as non-bank financial institutions. On the other hand, informal lenders are those outside the regulation 18 Formal Lender [ ] Informal Lender [ ]

6. If no in question 3, why not? (You can tick more than one)

a. Had enough savings/earnings from other sources [ ] b. Afraid to borrow [ ] c. Interest rates were not affordable [ ] d. Too many required documents to submit [ ] e. Uncertainty in paying the loan [ ] f. Lack of collateral [ ] g. Other(s), please specify ______

Section 2: Borrowing Behaviour of Manufacturing SMEs

1. Which type of formal or informal sources did you borrow the money from? (You can tick more than one)

1.1. Formal Sources a. Rural Banks [ ] b. Commercial Banks [ ] c. Thrift Banks [ ] d. Government Banks [ ] e. Savings/ Mortgage Banks [ ] f. Cooperative Banks [ ] g. People’s Org/ NGOs [ ] h. Microfinance institutions (MFIs) [ ] i. Pawnshops [ ] j. Lending Investors [ ] k. Others, please specify ______

1.2. Informal Sources a. Private Moneylenders [ ] b. Traders/Wholesalers or Retailers [ ] c. Millers/Processor [ ] d. Input suppliers/dealers [ ] e. Friends/Relatives [ ] f. Other informal source (please specify)______

Formal source of credit:

1. How many times did you borrow money from this lender in the last 12 months?

a. Once [ ] b. Twice [ ] of the banks, such as friends, relatives, millers, traders, moneylenders etc. (see next page for the types of formal and informal lenders).

19 c. 3 times [ ] d. More than 3 times [ ]

2. What is the maximum amount of loan you can borrow from this lender? a. less than US$ 150 [ ] b. US$ 151-300 [ ] c. US$ 301-450 [ ] d. US$ 451-600 [ ] e. US$ 601-750 [ ] f. US$ 751-900 [ ] g. more than US$ 900 [ ]

3. Approximately, how many percentages of your business’s borrowings is sourced from formal financial institutions?

□0-19% □20-39% □40-59% □60-79% □more than 80%

4. Do you believe that your business will need more finance for expansion in the future?

□Yes □No

5. Financial institutions are the main source of financing your business:

□Strongly agree □Agree □Uncertain □Disagree □Strongly disagree

6. What would be the conditions your firm would be prepared to undertake in order to secure additional lending from financial institutions?

a. □A higher interest rate □The same interest rate □Lower interest rate b. □More collateral □The same collateral □Less collateral c. Others, please specify ______

7. Was the loan amount received adequate?

Yes [ ] No [ ]

8. What is the purpose of your loan?

a. SME activities [ ] b. Non-SME business [ ] c. Basic household needs [ ] d. Emergencies (i.e. medical, hospitalization) [ ] e. Housing (i.e. repair, construction) [ ] f. Payment of other loans [ ] g. Others, please specify ______

9. What is the duration of your loan?

a. Short-term (less than 1 year) [ ] 20 b. Medium term (more than 1 year but less than 3 years) [ ] c. Long-term (more than 3 years) [ ]

10. What is the interest rate charged to your loan per annum?

a. Less than 10% [ ] b. 10%-15% [ ] c. 16%-20% [ ] d. 21%-25% [ ] e. More than 25% [ ]

11. What is your mode of payment?

a. Daily [ ] b. Weekly [ ] c. Monthly [ ] d. Quarterly [ ] e. Semi-Annual [ ] f. Others, please specify ______

12. Are there any additional charges for your loan?

Yes [ ] No [ ] (Please continue to Q14)

13. If yes, what are these additional charges?

a. Administrative or service fee [ ] b. Insurance fee [ ] c. Guarantee fee [ ] d. Others, please specify ______

14. Did your loan require collateral or security?

Yes [ ] No [ ] (Please continue to Q16)

15. If yes, what kind of collateral or security is/are required?

a. Mortgage/ Property [ ] b. Chattel Mortgage (i.e. vehicles, farm equipment) [ ] c. Promissory Notes (PN) [ ] d. Co-signor/co-guarantor [ ] e. Deposits [ ] f. Others, please specify ______

16. What is the status of your existing loan?

a. Fully paid [ ] b. Current [ ] c. Past due [ ] d. Restructured [ ]

21 17. How long did it take the financial institutions to process your loan application?

a. Less than a week [ ] b. 1 week [ ] c. 2 weeks [ ] d. 3 weeks [ ] e. 1 month [ ] f. More than a month [ ]

Informal source of credit:

18. Why you could not borrow from formal financial institutions?

a. Afraid to borrow [ ] b. Interest rates were not affordable [ ] c. Too many required documents to submit [ ] d. Uncertainty in paying the loan [ ] e. Lack of collateral [ ] f. Other(s), please specify ______

Section 3: Respondent’ Overall Experience

Strongly Strongly Part A: Formal Credit Availability Disagree Neutral Agree N/A Disagree agree I am aware of the formal financial 1 1 2 3 4 5 6 institutions available in my city There are enough financial 2 institutions in my city that I can 1 2 3 4 5 6 choose to borrow when I need. It is easy for me to meet the credit 3 1 2 3 4 5 6 officer The financial institutions are located 4 1 2 3 4 5 6 closed to my enterprise The financial institutions are able to 5 1 2 3 4 5 6 meet my loan demand and request Part B: Formal Credit Strongly Strongly Disagree Neutral Agree N/A Associability Disagree agree Having an acquaintance working in 1 the formal financial institutions will 1 2 3 4 5 6 better facilitate my visit Being a member of business 2 1 2 3 4 5 6 association facilitates me to get credit It is easy to obtain information to 3 properly compare the banking 1 2 3 4 5 6 services 4 An older enterprises is easy to get 1 2 3 4 5 6 credit from the formal financial

22 institutions Enterprisers have personal 5 relationship with financial institution 1 2 3 4 5 6 will facilitate access to credit Part C: Formal Credit Strongly Strongly Disagree Neutral Agree N/A Affordability Disagree agree Interest rates charged by formal 1 1 2 3 4 5 6 financial institutions are reasonable Costs of processing loan are 2 1 2 3 4 5 6 reasonable Loan procedure is easy for me to 3 1 2 3 4 5 6 follow Financial institutions provide 4 1 2 3 4 5 6 encouragement for me to get credit Strongly Strongly Part D: Formal Credit Conditions Disagree Neutral Agree N/A Disagree agree There are many types of loans 1 1 2 3 4 5 6 available for me There are many loan sizes available 2 1 2 3 4 5 6 for me Value of collateral used for 3 borrowing is reasonable with loan 1 2 3 4 5 6 size 4 Duration of the loan is reasonable 1 2 3 4 5 6 5 Term of repayment is reasonable 1 2 3 4 5 6 Financial institutions need business 6 1 2 3 4 5 6 plan to provide credit to enterprises Financial institutions require 7 1 2 3 4 5 6 financial statements are reasonable

Section 4: Socio-Economic Profile of Respondents

1. What type of SME are you involved in?

a. Garment Factories [ ] b. Handicrafts [ ] c. Agro-processing [ ] d. Rice millings [ ] e. Food-processing [ ] f. Other(s) please specify______

2. What type of ownership is your business?

a. a. Privately owned [ ] b. b. Partnership [ ] c. c. Family owned [ ] d. d. State owned [ ] 23 e. e. Foreign owned [ ] f. f. Other(s) please specify ______

3. Age of business:

a. Less than 3 years [ ] b. 3-6 years [ ] c. 7-10 years [ ] d. More than 10 years [ ]

4. What is your gender?

Male [ ] Female [ ]

5. Which age group do you belong to?

a. Below 25 [ ] b. 25 – 35 [ ] c. 36 – 45 [ ] d. 46 – 55 [ ] e. 56 – 65 [ ] f. Above 65 [ ]

6. What is your marital status?

a. Single/never Married [ ] b. Married [ ] c. Divorced/Separated [ ] d. De facto relationship [ ]

7. What is your highest level of education?

a. Primary [ ] b. High School level [ ] c. High School Graduate [ ] d. Vocational [ ] e. College level [ ] f. College Graduate [ ]

8. How many staff do you employ in your business currently? ______Number of staff

9. What is your enterprise’ annual revenue?

a. US$ 1,500 and below [ ] b. US$ 1,501-7,500 [ ] c. US$ 7,501-13,500 [ ] d. US$ 13,501-19,500 [ ] e. More than US$ 19,500 [ ]

10. Based on Q9, what was your business revenue over the last 12 months?

24 f. a. Increased [ ] g. b. Constant [ ] h. c. Decreased [ ]

11. Do you have collateral assets?

Yes [ ] No [ ]

12. If yes, what form of collateral assets do you have?

a. Land (residential and/or agricultural) [ ] b. House [ ] c. Vehicle [ ] d. Furniture and Fixtures [ ] e. Other(s) please specify______

13. What is the average size of your collateral assets?

a. Below US$ 750 [ ] b. US$ 750-1,400 [ ] c. US$ 1,401-2,150 [ ] d. US$ 2,151-2,900 [ ] e. More than US$ 2,900 [ ]

Your participation in this survey is greatly appreciated. Thank you for your time and if you wish to add any further comments about the credit accessibility, please feel free to voice them in the space provided below. Once again, we assure you that your identity will remain STRICTLY CONFIDENTIAL.